State Trust Code Sorts Out Remainder Assets and Intestate Rights

In 1987, a trust was created upon the death of the plaintiff’s grandfather. At the time of his death, the grandfather’s wife received one-half of the real estate owned by the grandfather directly and the other half was conveyed into a trust. The wife received the income from the trust during her life with the grandfather’s daughters as residual beneficiaries upon her death.

The grandfather’s wife died in 2008. The plaintiff’s mother was one of the residual beneficiaries, but she died intestate before the wife in 2008. The plaintiff and the remaining daughter were named co-executors of the wife’s estate and were to receive equal shares of the estate. The plaintiff filed a petition asserting several claims against the daughter. The surviving daughter counterclaimed asserting a right to the entire remainder interest in the trust assets. The plaintiff, as the sole issue of her mother, asserted a claim for one-half of the remainder interest under the state trust code. 

The daughter claimed because the plaintiff’s mother did not survive the lifetime beneficiary of the trust as required by the grandfather’s will, all assets would pass to her. She also argued that Iowa’s trust code did not apply to the trust established in 1987, but if the trust code did apply, language within the will to “share and share alike” were words of survivorship under § 633A.4701(8) requiring the plaintiff’s mother to survive the grandfather’s wife to receive her share of the remainder interest. 

The plaintiff’s mother’s husband was also brought into the suit. He claimed he was entitled to an intestate share of the mother’s (his wife’s) remainder interest in the trust assets under the state intestate statute because her interest was vested and one-half would pass to him as her surviving husband. He also claimed that a stipulation entered into between the plaintiff and him at the time the estate was settled that the mother’s estate was insolvent and the only asset of the estate was an undivided one-fourth remainder in a 200-acre farm that they agreed to split after sale of the property should apply to this matter as well. 

The plaintiff and surviving daughter argued the stipulation between the plaintiff and the mother’s husband resolving the mother’s estate was irrelevant to this legal matter.

After a hearing, the trial court ruled that the stipulation between the plaintiff and her mother’s husband was irrelevant. The court also held the trust code was applicable to the proceedings and specified the distribution of the trust assets. The court disagreed with the daughter’s contention that “share and share alike” language created a survivorship contingency. Taking all of this into account, the court held that the plaintiff was entitled to her mother’s one-half share of the remainder trust assets as they passed to the plaintiff upon the mother’s death under the trust code. 

The husband appealed. On appeal, he argued that the mother’s one-half remainder interest passed to him as her surviving husband and to the plaintiff as surviving issue in equal shares because he was not the father of the plaintiff. He also argued the trust code was not applicable for determination of the issue because it was enacted after the trust was established and because the court could find, under § 633A.1106(3), that if a trust code provision would substantially interfere with the rights of the parties, the code should not apply. He argued that the trust code interfered with his intestate rights and the mother’s estate proceedings, so it should not be applicable to this matter. 

First, the appellate court pointed out that Iowa Code § 633A.1106(1) expressly states that the code applies to matters regardless of whether the trust at issue was created before the statute was enacted, so it was applicable to resolution of this matter. 

The court also disagreed that the mother’s interest was vested at the time of her death. The court held that under the statute, the mother’s interest did not become possessory until the grandfather’s wife died. The trust document did not state otherwise, so the statute controlled. Because the mother did not survive the grandfather’s wife, the trust code provided that when a beneficiary dies before becoming entitled to possession and no alternate is named in the trust document, the beneficiary’s living issue receives the interest. At the time the grandfather’s wife died, the mother was no longer living. So the plaintiff, as the only child living at the time the right to the assets became possessory, was entitled to receive the mother’s entire share. 

The husband did not dispute the interpretation of the trust code giving the plaintiff her mother’s interest, but claimed the trust code was inapplicable to the matter because it interfered with his intestate rights. The court rejected his interpretation of the code, because all rights to dispose of property are entirely statutory. Under the intestate provision upon which the husband relies for entitlement to one-half of his wife’s estate, the statute expressly requires that the property be “possessed” by the mother during the marriage. Because the mother did not have a possessory interest to the trust assets during the marriage, the husband had no intestate rights through his wife. The trust code then applied and specified that the plaintiff was entitled to receive the entire share as the mother’s surviving child. Lalk v. Bernabe, No. 2-087/11-0392, 2012 Iowa App. LEXIS 432 (Iowa Ct. App. Jun. 13, 2012).